Basel Committee Proposes Cap to Halve Bank Exposures

A bank should limit its
exposure to any other single bank at no more than 5 percent of
its capital base to ensure it can stay in business if the other
lender defaults, global regulators proposed on Tuesday.

A bank should limit its
exposure to any other single bank at no more than 5 percent of
its capital base to ensure it can stay in business if the other
lender defaults, global regulators proposed on Tuesday.

The Basel Committee of banking supervisors from nearly 30
countries wants to tighten guidelines for so-called large
exposures to avoid banks becoming vulnerable in rocky markets.

Leaders of the world's top 20 economies (G20) called on the
committee at the height of the financial crisis in 2009 to
reinforce banking rules to make markets safer.

Large exposures are currently defined as 10 percent or more
of a bank's capital base, but this has been a discretionary
guideline. Basel is now proposing an enforceable global cap at
half that level.

The cap, like Basel's new minimum core capital ratio of 7
percent, will be fixed from the start of 2019.

"This is to ensure that the large exposures standard is
effective and consistent for internationally active banks," a
committee statement said.

"On this basis, breaches of the limit should be exceptional
events, should be communicated immediately to the supervisor and
should, normally, be rapidly rectified."